Robinhood Challenges State Bans in High-Stakes Prediction Market Battle

Robinhood Derivatives, LLC has filed lawsuits against the gaming regulators and attorneys general of New Jersey and Nevada, seeking to prevent enforcement actions against its sports event contracts. The suits argue that the states’ attempts to block Robinhood from offering these contracts are inconsistent with recent federal rulings that allowed Kalshi, another prediction market platform, to operate in the same manner. The lawsuits assert that if regulators are permitted to enforce state laws against Robinhood but not Kalshi, it would give Kalshi an unfair competitive advantage in the emerging space of event contracts, which allow users to trade on the outcomes of events such as sports games and elections [2].

The legal challenge comes as Robinhood continues to expand its prediction markets, including the recent launch of pro and college football prediction markets. These contracts enable users to trade outcomes of games, with plans to include weekly matchups as the season progresses. The company emphasized that these contracts differ from traditional sports betting, as they are structured as financial derivatives where buyers and sellers interact to set prices. Customers can trade and adjust their positions in real time, offering a level of flexibility and risk management not typically found in standard sports betting [3].

Robinhood's lawsuits against New Jersey and Nevada follow a pattern of legal action between the company and state regulators. Earlier this year, the company had to suspend the rollout of certain sports prediction markets after the Commodity Futures Trading Commission (CFTC) raised concerns. In June, Robinhood faced five separate lawsuits in five different state courts over allegations that its event contracts constitute illegal sports betting. Additionally, the company and Kalshi were sued by three Native American tribes over the legality of their prediction markets [2].

The legal uncertainties surrounding these event contracts have not deterred Robinhood from continuing its expansion. In collaboration with Kalshi, the company has facilitated the trading of event contracts on its platform. Kalshi itself has expanded its offerings to include more sophisticated betting-like markets, such as contracts based on player touchdown totals and point spreads. These contracts are regulated by the CFTC, allowing Kalshi to operate in states where traditional sports betting is illegal, such as California and Texas [4]. However, Kalshi recently faced a setback in Maryland, where a court ruled that it operates similarly to traditional sportsbooks and affirmed states’ rights to regulate gambling within their borders [4].

Robinhood has not shied away from the controversy that has surrounded its foray into sports prediction markets. The company has defended its approach by emphasizing the structural and regulatory distinctions between event contracts and traditional sports betting. It has also highlighted the broader economic and technological implications of prediction markets, including their potential to democratize access to financial tools and provide real-time insights into public sentiment and market expectations [3].

As the legal battles continue, Robinhood has also ventured into other innovative financial products, such as tokenized stocks, which it introduced in the European Union. These tokens, while not traditional equity, offer European investors exposure to U.S. stocks and ETFs, with dividend payments distributed directly within the app. However, the company has faced scrutiny over these tokens, particularly after a social media post from OpenAI raised questions about the legitimacy of the offering. Robinhood clarified that the tokens are based on its ownership stake in a special purpose vehicle rather than direct equity in private companies [5].

Source:

[1] title1 (https://newsroom.aboutrobinhood.com/pro-and-college-football-prediction-markets/)

[2] title2 (https://cointelegraph.com/news/robinhood-sues-new-jersey-nevada-over-sports-contract-threats)

[3] title3 (https://frontofficesports.com/robinhood-to-roll-out-football-prediction-markets/)

[4] title4 (https://frontofficesports.com/kalshi-adds-props-parlays-amid-legal-uncertainty/)

[5] title5 (https://www.pymnts.com/news/investment-tracker/2025/openai-says-it-does-not-endorse-robinhoods-stock-tokens/)